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Summary of Municipal Liquidity Facility

The CARES Act authorized the Secretary of the Treasury to make up to $500 billion in loans, loan guarantees, and other investments for eligible businesses, States, and municipalities. The term sheet released by the Federal Reserve on April 9th further clarifies the terms of the Municipal Liquidity Facility (MLF).

The MLF will support lending to US states and the District of Columbia, US cities with more than one million residents,[1] and US counties with more than two million residents.[2] Under the MLF, a Federal Reserve Bank will commit to lend to a special purpose vehicle (SPV) on a recourse basis. The SPV will purchase Eligible Notes directly from Eligible Issuers at the time of issuance. The Federal Reserve will be secured by all the assets of the SPV. The Department of the Treasury will make an initial equity investment of $35 billion in the SPV in connection with the MLF, and the SPV will have the ability to purchase up to $500 billion of Eligible Notes. Below is a summary of the MLF; additional regulations and guidance from the Treasury and the Federal Reserve is expected in the coming days.

Eligible Notes

Eligible Notes are tax anticipation notes, tax and revenue anticipation notes, bond anticipation notes, and other similar short-term notes issued by Eligible Issuers, so long as the note’s maturity date is no later than 24 months from the date of issuance. The Federal Reserve reserves the right to review any note’s eligibility, and relevant legal opinions and disclosures will be required as determined by the Federal Reserve prior to purchase.

Eligible Issuer

An Eligible Issuer is a State, City with a population exceeding one million residents, or County with a population exceeding two million residents (or an instrumentality thereof that issues on behalf of the State or eligible City or County for the purpose of managing its cash flows), subject to review and approval by the Federal Reserve. Only one issuer per State, City, or County is eligible.

Limit per State, City, or County

The SPV may purchase Eligible Notes issued by or on behalf of an Eligible Issuer in one or more issuances of up to an aggregate amount of 20% of the general revenue from own sources and utility revenue of the applicable State, City, or County government for fiscal year 2017. States may request that the SPV purchase Eligible Notes in excess of the applicable limit in order to assist political subdivisions and instrumentalities that are not eligible for the MLF.


Pricing is currently unknown, but will be based on an Eligible Issuer’s rating at the time of purchase. The Federal Reserve will provide further details at a later date.

Origination Fee

Each Eligible Issuer that participates in the MLF must pay an origination fee equal to 0.1% of the principal amount of the Eligible Issuer’s notes purchased by the SPV. The origination fee may be paid from the proceeds of the issuance.

Call Right

Eligible Notes purchased by the SPV are callable by the Eligible Issuer at any time at par.

Eligible Use of Proceeds

An Eligible Issuer may use the proceeds of Eligible Notes purchased by the SPV to help manage the cash flow impact of income tax deferrals resulting from an extension of an income tax filing deadline, potential reductions of tax and other revenues or increases in expenses related to or resulting from the COVID-19 pandemic, and requirements for the payment of principal and interest on obligations of such Eligible Issuer. An Eligible Issuer may use the proceeds of the notes purchased by the SPV to purchase similar notes issued by, or otherwise to assist, political subdivisions and instrumentalities of the Eligible Issuer for the purposes enumerated in the prior sentence.

Termination Date

The SPV will purchase Eligible Notes until September 30, 2020 (unless the Board and the Treasury Department extend the MLF). The Federal Reserve will continue to fund the SPV until the SPV’s underlying assets mature or are sold.

[1] Cities with a population exceeding one million include New York City, Los Angeles, Chicago, Houston, Phoenix, Philadelphia, San Antonio, San Diego, Dallas, and San Jose.
[2] Counties with a population exceeding two million included Maricopa (AZ), Los Angeles (CA), San Diego (CA), Orange (CA), Riverside (CA), San Bernardino (CA), Miami-Dade (FL), Cook (IL), Clark (NV), Harris (TX), Dallas (TX), Bexar (TX), Tarrant (TX) and King (WA).


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